HMOs Caught Flat-footed by Success of Pfizer's Viagra
April 29, 1998 10:36 AM
By Louis Hau
NEW YORK (Dow Jones)--As Pfizer Inc.'s (PFE)
impotence pill Viagra enjoys one of the strongest-ever
launches of any prescription drug, the managed-care
industry is scrambling to come up with appropriate
reimbursement policies for the product.
Some health-maintenance organizations have instituted
temporary guidelines, while many others are refusing to
pay for the drug until they have a chance to carry out a
formal post-market-launch evaluation.
While this reactive approach to reimbursement is typical
of managed-care companies, the industry's lack of
preparation in the case of Viagra is drawing criticism
from some market observers.
They point out that the Food and Drug Administration
had been widely expected to approve the drug this year
and that many had expected the product to be a big
seller, albeit not necessarily at the extraordinary levels
recorded so far.
Refusing to pay for Viagra until reimbursement guidelines
can be drawn up may protect managed-care companies
from a potentially large spike in drug costs, but it also
risks drawing the ire of enrollees who suffer from erectile
dysfunction, they said.
The result, according to Morgan Stanley Dean Witter
analyst Todd Richter, is that some HMO members
already feel that "insurance companies are regulating the
number of times they will pay for you to have sex."
Bear Stearns & Co. analyst Gary Frazier said that the
managed-care industry's scatter-shot reaction to Viagra
has been disappointing because the product presented
HMOs with an ideal opportunity to rally together and for
once draw up an industry-wide reimbursement policy for
a drug that, while medically useful, doesn't treat a
life-threatening condition.
Considering that major drug makers have many other
such products in development - and mindful of the fact
that pharmaceuticals account for a large portion of a
typical managed-care company's medical costs - "you
would think their antennae would be incredibly sensitized
to something like this," Frazier said.
Special Conditions On Reimbursement Seen
The lack of reimbursement in some quarters certainly
doesn't appear to be hurting Viagra sales. As was
previously reported by the market-research firm IMS
Health, new Viagra prescriptions totalled 113,134 in the
week ended April 17, accounting for 94.4% of all new
prescriptions for erectile-dysfunction therapies. That is
up from 36,263 new prescriptions in the previous week.
Despite a retail price of about $9 to $10 a pill,
consumers appear to be shouldering the entire cost
themselves for the large majority of Viagra sales, said
Pfizer spokesman Andrew McCormick.
Although sales of the drug have been vigorous even
without the benefit of widespread insurance coverage,
Pfizer still considers reimbursement to be important over
the long term, McCormick said.
The company is meeting with health insurers to present
them with clinical and safety data on Viagra, he said,
adding that "we think it'll be broadly covered."
Mary Sevon, a Philadelphia-based pharmacy-benefit
consultant who advises HMOs, said the initial sales
ramp-up of a new drug usually allows managed-care
companies the time to review the product for
reimbursement without external pressures.
She noted, however, that Viagra is "a fairly unique
situation because of the demand that's there, the
personal nature of it and the fact that it came through the
FDA very quickly."
HMOs typically take at least several months to come up
with a formal reimbursement policy for a newly
approved drug. Industry experts believe managed-care
companies may eventually attach special conditions to
Viagra reimbursement to discourage overutilization, such
as requiring prior consultation with a urologist rather than
a primary-care physician; including a separate rider
specifying how much more a health plan will cost with
Viagra coverage; or placing limits on the number of pills
paid per month.
Imposing reimbursement limits on Viagra, which is
already being done by some companies, is a sensitive
topic because the perceived need for the product will
vary greatly from patient to patient. However, limits are
considered important because of fears that unfettered
reimbursement of such a sought-after drug could lead to
illegal resale at higher prices, according to Judy
Vermilyea, who studies HMO pharmacy-benefit policies
for the Newtown, Pa., market-research firm
Scott-Levin.
Fears of illicit resale are fueled by the persistence of
public misperceptions of Viagra's benefits, such as the
erroneous belief among some consumers that the
product can enhance the sexual performance of healthy,
nonimpotent men, Vermilyea said.
"There's a big concern about inappropriate use," she
said.
Consumer Awareness Greater Than In Past
Scattered managed-care companies have instituted
temporary reimbursement policies for Viagra, pending
further evaluation.
For example, WellPoint Health Networks Inc. (WLP)
will pay for up to six pills a month for its commercial
health-plan members, with part of the cost shared with
enrollees through a co-payment. The company's
Medicare HMO and Medicaid plan members aren't
covered.
Most of Foundation Health Systems Inc.'s (FHS)
members aren't being reimbursed for the drug while the
company reviews the issue. However, due to
competitive pressures in the Florida Medicare market,
Foundation is offering to pay for up eight pills a month
for its Medicare HMO members there. The company is
responding to similar reimbursement decisions in Florida
by United HealthCare Corp. (UNH), Blue Cross of
Florida and AvMed Health Plan, according to David
Olson, Foundation director of investor relations.
Bear Stearns' Frazier believes Viagra could have a
mildly unfavorable impact on HMO drug cost trends in
the second quarter, replacing flu-related costs in recent
months as a new incremental cost issue for
managed-care companies. The result could be a loss of
a penny or two in earnings at some companies, he said.
Frazier said he doesn't expect a more significant
short-term impact considering that most HMOs are
either not covering Viagra or are imposing monthly limits
on reimbursement. Among those that are reimbursing on
a limited basis, enrollee co-pays are helping defray the
costs, he said.
For commercial health plans, the issue of whether Viagra
use will be covered will be ultimately up to company
benefits managers, who will have to decide whether to
accept the added cost of Viagra reimbursement,
Morgan Stanley's Richter said.
While HMOs may find a way to manage their Viagra
costs, Richter warned they must recognize that the drug
is stark illustration of how direct-to-consumer
advertising, heightened media attention and the pletora
of information available over the internet have combined
to dramatically increase consumer awareness of new
pharmaceuticals and create faster demand for these
products.
"Given the number of times they've been burned by drug
costs in the past, (their handling of Viagra) is not one of
their finest hours," he said.
-Louis Hau; 201-938-5240;
louis.hau@cor.dowjones.com |
